Estate Planning a Way to Help Keep the Promises You Made We All Make Promises

Estate Planning A way to help keep the promises you made We all make promises. We promise to keep our families safe and secure even after we’re gone. We promise to give our children all the benefits of our own success. We promise ourselves that their future will be free from financial worries. In essence, estate planning can be the single best way to make certain the promises you make are promises you keep.

TABLE OF CONTENTS

1 A Sound Estate Plan 2 Forming an Estate Planning Team 3 Choosing the Option That’s Right for You 9 The Current Tax Environment

The information provided is not written or intended as specific tax or legal advice. MassMutual, its subsidiaries, employees, and representatives are not authorized to give tax or legal advice. Individuals are encouraged to seek advice from their own tax or legal counsel. Individuals involved in the estate planning process should work with an estate planning team, including their own personal legal or tax counsel.

NOT A BANK OR CREDIT UNION DEPOSIT OR OBLIGATION • NOT FDIC OR NCUA INSURED • NOT INSURED BY ANY FEDERAL GOVERNMENT AGENCY • NOT GUARANTEED BY ANY BANK OR CREDIT UNION A Sound Estate Plan

We all have goals we want to meet during our lifetime. The education of our children, a comfortable and financially secure retirement, and perhaps a new home or a second home.

The first step of estate planning is to help you plan for — and realize — these lifetime goals. It addresses your legal and financial concerns, taking into account your goals and tax considerations. It also takes advantage of existing laws and funding vehicles to help save on taxes and help manage your property in an efficient and profitable way during your lifetime.

Here are some of the more significant ways estate planning can help you make certain your family will get as much of your estate as is legally possible.

Minimizes Estate Taxes Protects Your Family’s Income Depending upon your net worth, the federal How will the members of your family support government may levy a substantial tax against themselves after you’re gone? A sound the value of your estate. In addition, some estate plan, including life insurance for your states impose their own separate tax at death beneficiaries’ financial protection, can make on their residents and on non-residents who certain they will be taken care of. own property within the taxing state. Just as important, that tax is due and payable before any property can be transferred to your Provides Professional beneficiaries. With a well-conceived estate plan, Asset Management some — or even all — of this tax may be avoided. An estate plan that includes the creation of a trust can be established to arrange for Liquidity to Pay Estate Taxes the professional management of your assets on your family’s behalf. If your estate consists primarily of real estate, a business, or other non-liquid assets, your heirs could end up cash poor — and be forced Controls Distribution to sell assets in order to pay taxes. Estate of Your Estate planning can help by reducing your estate tax liability. Additionally, an estate plan that Will your assets be distributed the way you includes life insurance can help address your want them to? Your estate plan will help estate liquidity needs. make sure your wishes are met.

1 Forming an Estate Planning Team

Estate planning is a team effort. It involves the talents and efforts of a number of professionals — people you respect and trust.

Financial Services Life insurance plays a critical role in estate planning. It provides cash to pay estate Representative settlement expenses and taxes — and it As a result of the unique features and tax provides the capital to meet the financial advantages of life insurance, your financial needs of your family. While it gives you the services representative is a key member of security of a death benefit, life insurance can your estate planning team. also be used to help you accumulate savings to supplement your retirement income. Attorney Life insurance coupled with an irrevocable life insurance trust can be even more advantageous Your attorney would be responsible for making for you, particularly if the joint assets of you and sure that your intentions are carried out in your spouse are worth more than two times the legally enforceable documents. applicable exclusion amount. This is the usual cut-off point where your heirs can, through Accountant proper estate planning, receive your assets without paying federal estate taxes. Your accountant may provide tax advice and would be most familiar with the extent An irrevocable life insurance trust offers and value of your assets. several unique advantages: • The proceeds of the life insurance policy Bank Trust Officer can be insulated from estate taxes. • Life insurance proceeds can pass income If you have chosen to use a corporate trustee, tax-free to your beneficiaries. you will want to include the trust officer in • The premium may be gifted to the your planning discussions. trust, and thereby reduce the remaining taxable estate.

Did you know Since life insurance is such a vital part of your MassMutual Trust Company estate planning needs, you should make sure can serve as your corporate you work with a company that is among the trustee? Learn more at leaders in the industry, such as Massachusetts www.massmutualtrust.com Mutual Life Insurance Company (MassMutual). Furthermore, MassMutual’s financial professionals can work with the advanced sales team on complex case designs.

2 Choosing the Option That’s Right for You

BASIC ESTATE PLANNING TECHNIQUES

Technique Definition Best Application Tax Pros/Cons Other Advantages Other Concerns Will A legal instrument A valid will is a The individual Ensures property Property passing through which an cornerstone of any can maximize use is disposed per through a will individual disposes estate plan. of the unlimited individual’s wishes; is subject to of his/her property marital deduction allows individual to probate fees. at death. and the applicable stipulate a guardian exclusion amount. for minor children.

Durable A legal instrument Like the will, the If specifically Allows the principal Must adhere to Power of granting power durable power is a authorized in to designate who laws of particular Attorney to another party basic component of the instrument, will act on his/her jurisdiction. (“agent”) to act all estate plans, and the person given behalf without on the individual’s particularly important power of attorney probate court (“principal”) behalf. with elderly and can make gifts intervention should disabled clients. and reduce the he/she become principal’s estate. incapacitated.

Health Care A legal instrument A health care None Informs others of Must adhere to Directive granting power directive is also a the principal’s wishes laws of particular aka Health to another party basic component of about his health jurisdiction. Care Power (“agent”) to act all estate plans, and care. It allows the of Attorney on the individual’s particularly important principal to name an (“principal”) behalf. with elderly and agent to make health disabled individuals. care decisions for the principal if the principal is unable.

Living Will A legal document The living will is an None The living will allows The format of the expressing an important component the individual living will document individual’s wishes of all estate plans. to control his or must comply with concerning her destiny. state law. life-support procedures should the individual become terminally ill.

3 BASIC ESTATE PLANNING TECHNIQUES (CONTINUED)

Technique Definition Best Application Tax Pros/Cons Other Advantages Other Concerns Life A contract that Life insurance is an Death benefit Life insurance can Balancing premium Insurance provides cash at the integral part of estate passes to the provide: family payments against death of the insured; planning at all stages beneficiary free income in the event other financial the contract may of the individual’s of income taxes of premature death obligations also provide for cash life cycle. and if owned of the individual affecting current accumulation during correctly, will not and/or spouse; cash flow. the life of the insured. be included in the cash value of whole decedent’s estate life insurance can for tax purposes. help to provide for children’s education and/or supplemental retirement income; and liquidity to pay estate taxes. Qualified A refusal to accept Used where donee/ Property is treated Facilitates Disclaimer must be Disclaimer gift or bequest by beneficiary of as if it never passed postmortem an unqualified refusal intended recipient. property prefers that to original donee/ planning. in writing received someone else receives beneficiary. by the donor within the property. nine months; the beneficiary must not accept the property; property must pass to someone other than the person disclaiming; person disclaiming cannot direct disposition.

4 ADVANCED ESTATE PLANNING TECHNIQUES UTILIZING TRUSTS

Technique Definition Best Application Tax Pros/Cons Other Advantages Other Concerns Revocable Trust A trust is a fiduciary Useful in conjunction No tax advantage Efficient receptacle No major (Living Trust) arrangement created with durable power of to the grantor for holding assets concerns since by the grantor where attorney and a pour since the grantor during lifetime so that trust can legal title to property over will (providing will be taxed on assets are funneled be changed given by the grantor is that all other assets the income and to marital deduction or terminated. held and the property “pour over” into the the assets will be or bypass trusts managed by a trustee trust at death). included in the at death; provides for the benefit of grantor’s taxable for management a beneficiary. A estate at death. of property revocable trust can should grantor be be revoked, amended, incapacitated; probate or terminated and the costs and publicity are property recovered avoided by using a trust by grantor. versus a will alone. Irrevocable Life A trust, which Estates with Substantially Estate liquidity Grantor loses Insurance Trust cannot be changed liquidity problems. reduces grantor’s enhanced; expenses control of or terminated by estate through and publicity of property the grantor; the annual gifts probate are avoided. in trust. trust purchases life thus reducing insurance using funds estate taxes; gifted to the trust death proceeds by the grantor; at are received by the grantor’s death beneficiaries the death benefits income tax and pass to the trust’s estate tax free. beneficiaries. Marital Often referred to These are basic estate Minimizes estate Professional Possible loss Deduction & as A-B trusts, these planning tools useful taxes by: allowing management of of control of Bypass Trusts trusts are established in estates where the both spouses to assets by the trustee the assets by to minimize estate joint assets of the take advantage after the death of the the surviving taxes. The bypass spouses exceed the of the applicable first spouse. spouse, if trust takes maximum value of their total exclusion amount; spouse is not advantage of the unified credit. and by fully utilizing named sole applicable exclusion the unlimited trustee. amount and the marital deduction marital deduction (thus deferring trust maximizes taxes until the use of the marital estate passes to the deduction. children/family). Charitable An irrevocable trust Useful where grantor The grantor is Increased current Grantor must Remainder providing current wants to make a entitled to a income; ability be willing to Trusts (CRT) income payments to charitable gift but current income to make gift to relinquish the grantor followed also wants income; tax charitable favored charity. control of by payment of the appropriate where deduction; the the asset. remainder to a charity. grantor wants trust can sell increased income from highly appreciated appreciated property property without without selling and incurring capital incurring capital gains; gains; the property applicable where estate gifted to the trust tax avoidance and is removed from current income tax the taxable estate. deduction are goals.

5 ADVANCED ESTATE PLANNING TECHNIQUES UTILIZING TRUSTS (CONTINUED)

Technique Definition Best Application Tax Pros/Cons Other Advantages Other Concerns Charitable An irrevocable trust Grantor wants to benefit Can provide Provides current Grantor is taxed on Lead Trust providing current charity currently while significant income income stream to the trust’s income. (CLT) income payments keeping property in the tax deduction; grantor’s favorite to a charity followed family; grantor wants testamentary charity; property by payment of the current income tax CLT can provide remains in family. remainder interest deductions but is willing significant estate to a non-charitable to report trust income tax deduction for beneficiary. later; grantor facing the charitable substantial estate taxes interest; enables and wants to transfer grantor to transfer property to children at substantial wealth minimal gift/estate tax to children or cost; grantor with rapidly grandchildren at appreciating property minimum gift/ wants to remove future estate tax cost. appreciation from estate at minimal gift tax cost.

Grantor An irrevocable Used to freeze the estate Appreciation of Provides fixed The grantor Retained trust into which (restrict taxable estate assets escapes income stream sacrifices control Annuity Trust the grantor places to its current value) to estate taxes; to grantor. over the property; (GRAT) income-producing reduce estate taxes; often assets can be if grantor dies property but used to transfer stocks or transferred to the during the retained retains the right to real estate on a favorable next generation interest period, a fixed annuity for gift tax basis. at a substantial the property a specified term of discount; income is included in his/ years after which the from the her estate. property passes to trust taxed to the children/family. the grantor.

Grantor An irrevocable Same as GRAT. Same as GRAT. Provides variable Same as GRAT. Retained trust into which current income Unitrust the grantor places stream to grantor. (GRUT) income-producing property but retains the right to a fixed percentage of the property for a specified term of years after which the property passes to the children/family.

6 ADVANCED ESTATE PLANNING TECHNIQUES UTILIZING TRUSTS (CONTINUED)

Technique Definition Best Application Tax Pros/Cons Other Advantages Other Concerns Qualified A trust that holds Used where Reduction of QPRTs are Tax savings are only Personal the grantor’s grantor wants estate taxes; gift exempted from realized if grantor Residence primary or vacation to reduce estate tax is reduced by the anti-estate lives beyond the term Trust (QPRT) home; the grantor taxes while also the value of the freeze rules. of years that the retains the right to residing in home. interest retained residence is retained. reside in the home by the grantor to Continued use of for a term of years; reside in the house. property after QPRT thereafter, the ends requires payment house is transferred of rent by grantor. to the beneficiaries.

Estate Freeze Methods designed Used to Reduces estate/ Property owner Estate freeze law Techniques to restrict taxable transfer highly gift taxes. retains some must be satisfied to estate to its current appreciating control over gain tax advantages. value (see FLP, property to heirs. property but shifts GRAT, GRUT, SCIN appreciation in for examples). property to heirs.

Power of A property right Appropriate in The power of Provides flexibility Donor has no control Appointment allowing the “wait and see” appointment is to shift property over ultimate recipient to control situations where not taxed in the according to disposition of the who will receive the donor grants estate of the changing needs/ property by the holder the property. decision to power holder of the circumstances. of the power holder to transfer power, provided of appointment. property at the power is future date. drafted correctly.

2503(c) Trusts Trusts utilized to gift Appropriate Reduces estate Gives grantor Grantor loses property to a minor. where grantor taxes of grantor; peace of mind personal control of wants to shifts taxable knowing that assets and minor has control the use income to minor assets will be access at age 21. of the trust (subject to kiddie properly managed property until tax limitations). for the benefit the beneficiary of the minor reaches adulthood. beneficiary.

7 OTHER ADVANCED ESTATE PLANNING TECHNIQUES

Technique Definition Best Application Tax Pros/Cons Other Advantages Other Concerns Gifts* A gratuitous transfer Most appropriate for Donor can gift up to Removes Donor’s loss of property during transferring assets value of annual gift tax appreciation of control the donor’s lifetime. that will significantly exclusion to each of asset from over property. appreciate. donee per year free of taxable estate. gift tax; reduces size of taxable estate. Generation- Transfers of Used when donor Subject to Can provide Donor’s loss Skipping property to a wants to pass property Generation-Skipping creditor of control Transfers* person(s) two or to grandchildren/ Transfer Tax unless some protection for over property. more generations great-grandchildren. permissible exemption/ beneficiaries for below the donor. exclusion applies. generations. Family An association of Used to pass property Reduction in estate Management and Unlimited liability Limited family members to to family members at taxes since property control of family of general Partnership carry on a business discounted values. appreciation assets remain partners if a (FLP) and for profit; normally transferred from senior vested in senior partnership is Family the parents are the generation’s taxable family members. used; expense of general partners estate and discounts establishing an Limited who operate the may reduce the value FLP or LLC. Liability organization and of gifts to family Companies assume full liability; member(s); reduction in (LLCs) they convey limited income taxes if limited partnership interests partner-donees are in to other family lower tax bracket. members. With LLCs, members can manage the LLC without exposure to full liability. Charitable Gift to Useful when donor Donor would Donor’s Charitable gift Contributions favorite charity. wants to benefit receive income tax satisfaction in reduces estate charity while also deduction up to the benefiting charity. passing to possibly gaining percentage limits. donor’s heirs. income and transfer tax advantages. Installment Sales methods Useful for freezing Any capital gains on a Provides flexibility With installment Sales & Self whereby the value of highly sale can be recognized to the seller in sale, any Canceling purchaser pays for appreciating property; gradually by seller; can either spreading installments Installment property over a used when purchaser reduce estate tax by out recognition due at death Notes (SCIN) period of time. cannot afford full shifting appreciation of capital gain of seller are purchase price at in property to heirs; or immediately included in the time of purchase. any balance remaining recognizing; gives seller’s estate. on SCIN at death of buyer flexibility seller is canceled and of spreading not subject to estate out payments. tax (but remaining gain is taxable income to estate). A SCIN requires an additional premium cost to be paid in order for the balance of note to be canceled at the death of the seller.

* The Tax Cuts and Jobs Act of 2017 changed the estate, gift and generation-skipping transfer exemption amount to $10,000,000, as indexed for inflation. Under this law, the exemption will revert back to the prior law for years after December 31, 2025. Please see IRS.gov for additional information. 8 The Current Tax Environment

The size of your estate will determine the “Portability” of any Unused extent of your need to plan for the future payment of estate taxes. This piece is intended Estate Tax Exemption to examine the federal estate tax rules. It is The Deceased Spousal Unused Exclusion possible, depending upon state residency at Amount (DSUEA) is known as portability. It is death and where you own property, that an the ability for the executor of the deceased estate exempt from federal estate tax could be spouse’s estate to elect, on a timely filed subject to state inheritance or estate tax. Federal Estate Tax Return (Form 706), that any unused exemption be “ported” over to the Because there is no tax on assets inherited by surviving spouse. a surviving spouse, the estate tax exemption amount only works for assets that do not In the past, trusts — often referred to as pass to a husband or wife. Therefore, many bypass trusts or credit shelter trusts — were estate plans commonly transfer the maximum established to utilize the estate tax exemption exemption amount in a “bypass” trust that of the first spouse of a married couple to benefits the children or family. die. Assets transferred to these trusts at the death of the first spouse “bypassed” or were Exemptions and Rates “sheltered” from estate taxation at the death of the second spouse. The Tax Cuts and Jobs Act of 2017 provides for unified federal estate, gift and generation- While this new provision has the potential skipping transfer tax laws and the tax to help simplify estate tax planning for exemptions of $10,000,000 per person married couples, it should be noted that ($20,000,000 per married couple), as indexed there are benefits to using a bypass or credit for inflation. Under current law, the estate, gift shelter trust that portability does not offer, and generation-skipping transfer exemption including creditor protection and keeping the will sunset for years after December 31, 2025, appreciation or increase in value of trust assets reverting back to a $5,000,000 exemption, out of the second spouse’s taxable estate. plus an inflation adjustment. Please see IRS.gov for additional information.

9 TAX RATES AND EXEMPTION EQUIVALENTS

Calendar Year Estate and GST Tax Deathtime Transfer Exemption Highest Estate and Gift Tax Rates (GST Tax Rate) 2010 N/A (estate and GST tax repealed) Gift tax remains, equal to top individual income tax rate of 35% 2011 $ 5,000,000 35% 2012 $ 5,120,000 35% 2013 $ 5,250,000 40% 2014 $ 5,340,000 40% 2015 $ 5,430,000 40% 2016 $ 5,450,000 40% 2017 $ 5,490,000 40% 2018 $11,180,000 40% 2019 $11,400,000 40% 2020 $11,580,000 40%

The Tax Cuts and Jobs Act of 2017 changed the estate, gift and generation-skipping transfer exemption amount to $10,000,000, as indexed for inflation. Under this law, the exemption will revert back to the prior law for years after December 31, 2025. Please see IRS.gov for additional information.

Insurance products issued by Massachusetts Mutual Life Insurance Company (MassMutual) (Springfield, MA 011111) and its subsidiaries, C.M. Life Insurance Co. and MML Bay State Life Insurance Co. (Enfield, CT 06082). C.M. Life Insurance Co. and MML Bay State Life Insurance Co. are non-admitted in New York.